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Risk, resilience and the road to a sustainable future

It's conference season for the reinsurance industry. And in my conversations with clients, the topics of resilience and sustainability come up again and again. These two concepts are, of course, opposite sides of the same coin. Resilience is our ability to pick up the pieces and soldier on after a major setback. Sustainability means looking carefully at how we act responsibly with the resources at our disposal and in the interest of the broader good of society.

The heightened attention to these twin topics is hardly surprising given the uncertain times we live in, characterised as they are by a looming economic slowdown, increasingly acrimonious trade disputes and rising political tensions. So it's all the more important that we in the insurance industry make prudent, forward-looking and informed choices about risk and resilience – guided by a strategy with long term vision and a sustainable value proposition at its very core.

Risk data and research

As my colleague Reinsurance CEO Moses Ojeisekhoba writes in his blog, data analytics  are becoming an all-important asset to proactively manage risks, promote sustainable behaviour and help make the world more resilient. Consequently, the insurance industry has a vested interest in tracking societies' ability to bounce back after setbacks and identifying new opportunities for insurance to advance societal resilience. Neither of these objectives, however, can be achieved without solid, evidence-based research.

This is why during this year's conference season, we're showcasing risk research and knowledge as the foundation of sound resilience-building with the launch of a new Resilience Index. Developed jointly by Swiss Re Institute and the London School of Economics, the index demonstrates that if we know our weak spots and do something to fix them, we stand a much better chance of dealing with uncertainty and coming through adversity unscathed.

Sound economics and insurance

Our research also shows how sound economics paired with wider insurance coverage can greatly improve our readiness to recover from shocks and reignite growth. And how, by measuring resilience through macro and micro lenses, we're going to be better able to cope with risks as varied as a slowing economy, rising national debt, climate change, ageing populations or the mounting pressure on our natural resources.

The evidence is clear: when it comes to these threats, strengthening our resilience is closely coupled with our willingness and ability to adopt more sustainable approaches, and to do so quickly – whether it's how we live, how we work, how we consume or how we do business.

Insurance is an important catalyst for this transformation. It not only helps raise our defences but also put us on a more sustainable footing. As the Resilience Index confirms, countries and regions with higher levels of insurance penetration experience less volatile growth. And adequate insurance coverage boosts stronger recoveries after a disaster, thereby increasing the resilience of entire economies in the short and long term. Nonetheless, even the most resilient countries have work to do to in some areas. The question is: what makes some countries more resilient than others? And what can we learn from them?

The end consumer in mind

One key success factor is the importance of looking at resilience not just from a financial or economic perspective but also from a broader societal perspective. From this vantage point, it's equally important to consider the resilience of individual insurance customers. It’s easy to see how a major disaster such as an earthquake or hurricane can damage a nation’s economic performance. But events affecting many individuals or groups in society can equally have significant macroeconomic consequences.

This is why our research into resilience and sustainability also examines personal circumstances like the ability of a family to survive the death of a breadwinner or the medical costs of treating someone with a life-threatening disease. If individuals are uninsured, the costs of these personal disasters will either fall on the state – restricting its ability to support the wider economy – or the individual’s family.

In the latter case, the consequences may include poverty and forced sale of assets, both of which have an impact on a country’s economy and long-term development, especially if repeated often enough. Not surprisingly, countries with low levels of health insurance and higher rates of disease will therefore be less resilient than those in which citizens can access treatment without destroying their financial security.

Protection gaps and barriers

Yet, for all the benefits insurance offers, there are still too many barriers that prevent the insurance industry from contributing fully to long-term growth and resilience. This is reflected in the large protection gap of USD 1.2 trillion in total uninsured losses. The figure includes the global uninsured costs of natural catastrophes, premature mortality rates and healthcare spending.

Closing the protection gap makes common economic sense and is a key way we can help strengthen societal resilience. For the insurance industry, it means reinforcing efforts to provide insurance protection to more people and households around the world. But governments, regulators, insurers and businesses all need to pull together to help tackle the systemic reasons for underinsurance. This includes making insurance more available and affordable, offering tailored products to more customers and simplifying the claims process.

Digital technology is indispensable to reduce costs along the insurance value chain and reach new segments of the market. But true innovation is much bigger than that. Driving innovation comes down to the insights we gain about risk and how we apply these for the benefit of our respective insurance customers.

The new Resilience Index is a good example of how risk knowledge can help guide our decision-making and open new opportunities for insurers and reinsurers alike. Identifying these opportunities should include driving and collaborating on a research agenda where our findings help underpin the right underwriting decisions – and ultimately, where more informed choices about risk and resilience contribute towards a more sustainable future.